Young skip health plans, push up prices

Ever wonder why a family health insurance cover costs more than the insurance for the family car? The answer to that perhaps lies in the insurance industry’s inability to attract enough youngsters and the misconceptions among buyers.

A large section of the youth in India feels that there is no advantage in buying health insurance early in life and that the cover is meant for the old and infirm, according to a survey on health insurance perceptions conducted by Max Bupa Health Insurance. This perception has led to what insurance companies call an anti-selection — a situation where people who need health insurance the most are the most likely to buy it.

According to Anika Agarwal, marketing head, Max Bupa Health Insurance, although 70% of the respondents felt that health insurance was more important than life insurance, half of the respondents said that health insurance was only for old people.

“The average age of our customers is 35-plus, which shows that a lot of people are not investing in health insurance in their 20s. To protect yourself and guard against rising medical inflation, you should buy the policy early in life, say, by 30 or 35 years. This is primarily for two reasons: You will not only be serving out the waiting period at a much younger age, but there is little risk of being refused a policy at an older age or buying a policy with lots of exclusions,” said Agarwal.

The trend in health insurance is in sharp contrast to motor where one of the first actions while purchasing a car is to buy a comprehensive cover. It is only after a few years that it is decided to discontinue the ‘all risk’ cover and move to the mandatory ‘third-party liability’ cover. This is despite statistics which show that accidents are higher in older cars.

“In some countries health insurance cover is bought at the time of birth. In India, the concept of health insurance is recent as most of our parents did not buy health covers. Moreover, with employers offering group covers, those who join the workforce do not have an incentive to buy individual cover and the realization dawns only when they suffer from a serious ailment or when someone insists that they buy it,” said Sanjay Datta, head of underwriting and claims at ICICI Lombard.

The difference between life and health insurance is that there is a clear advantage in buying term insurance early. Younger buyers pay the same low premium throughout the term of the policies even after they age. This is because life insurers structure their premium in the form of equated monthly installments by averaging out, or ‘leveling’, the risk premium over the term of the policy. But in health insurance, the buyer pays the premium according to his age bucket.

According to Agarwal, there is still an incentive for people to buy health insurance at an early age as they will be serving out the waiting period at a much younger age. It also reduces the risk of being refused a policy at an older age or buying a policy with a lot of exclusions. “Also, we offer loyalty benefits in the form of points — up to 10% of sum insured — that can be claimed at the time of renewal and also the option to increase your sum insured up to 100%,” said Agarwal.

Datta points out that there are benefits such as a higher sum insured in place of a no-claim bonus, but he admits that the price advantage is limited. “The industry has not evolved to the level where it can promise a person buying health insurance at 20 that he will get a better deal at 60 years than a new customer who joins at 60,” said Datta.